In 2015, a conversation on a hiking trail in Hong Kong led to the creation of the perpetual swap, also known as a perpetual future or 'perp.' Ben Delo, BitMEX co-founder and mathematician, was discussing a problem with a friend, Bavik, a derivatives trader. BitMEX had tried various futures contracts, but customers kept complaining about positions closing without warning. They wanted a product that resembled spot trading but offered the leverage of a derivatives exchange. Delo asked, 'What if a future never expired?' Bavik replied that it would be mathematically worth infinity.
However, he suggested charging traders the bitcoin overnight rate to solve the issue. Delo built this concept into a product, inventing one of the most significant financial products of the 21st century. Initially, BitMEX focused on institutional hedgers, but it was retail traders who ultimately drove the platform's growth.
By offering 100x leverage and a real-time margining system, BitMEX attracted sophisticated traders. The perpetual swap, launched in 2016, was a futures contract with no expiry date, anchored to the spot price through a daily funding rate. The funding rate was initially derived from third-party lending markets but was later adjusted to a dynamic mechanism that looked inward at the swap's trading activity. This approach has become the standard for major derivatives exchanges.
By 2017, BitMEX was the most liquid bitcoin market, processing $3-4 billion daily, with the perpetual swap at its core. The product's success led to its adoption by other exchanges, and it is now considered one of the most successful financial innovations in history, with an estimated $40-50 trillion in annual turnover. Delo believes that traditional finance will eventually recognize the benefits of perpetual swaps, leading to further growth and adoption.